Research shows that global fund managers rate India above China and are shovelling funds into the Indian stock markets, said Channel News Asia on Thursday, quoting a report by Credit Lyonnais Securities Asia, a global investment banker.

Even Morgan Stanley is reportedly pulling funds out of the Chinese and focusing on the Indian markets.

Foreign capital is seemingly flooding the Indian capital markets, and this has been evidenced by the spurt in the Sensex that has sprinted from 2828 points in October 2002 to 4455 points on October 1, 2003.

This represents a rise of over 1620 points and foreign institutional investors have driven much of this rally.

While India and China both have huge domestic markets, the Indian growth story appears to be more appealing to foreign funds.

India has been rated far ahead of China in terms of return on equity and corporate governance, particularly for the large cap and mid-cap stocks, says the CLSA report.

Channel News Asia quoted Chris Wood, an equity strategist at CLSA, as saying: "India, Indonesia, they are more domestically geared and so they can decouple too. Any economy that's viewed as export-driven, where people don't have confidence in domestic demand, will remain co-related to Wall Street. So, that's why the single most important economy market to test whether Asia can get a domestic demand story in a big way is Hong Kong."

Wood is waiting for the decoupling of Asian bourses from the United States to prove that local domestic demand can drive the markets in the Asian region, the news report said.

Another investment house, Morgan Stanley, is also pulling out of China plays for the time being, preferring domestic plays like India against exporters like China, the Singapore-based Channel News Asia reported.

A Morgan Stanley report stated that fund managers may 'not get positive absolute returns in China equities over the next six months.'

This has given the Indian stock markets a reason to cheer about.

Net investments in Indian markets from foreign funds so far this year have topped $3 billion, more than four times the total last year, the report said.